While investments may be the fun bit for some, it seems mote and more advisers are outsourcing fund selection. We hosted a roundtable at our offices last week, attended by a group of high-powered discretionary fund managers and chief investment officers, and there was a definite consensus that the move to outsourcing has gathered pace.

Our latest survey suggests that outsourcing accounts for roughly one third of advised assets but that the use of DFMs for bespoke portfolios is on the decline, as advisers increase their use of model portfolios. Just over a quarter of advisers tell us they are using third-party model portfolios, with the vast majority of these assets run on a discretionary basis.

There is a common fear among advisers that in deciding to outsource they will be cut out of the equation. After all, if they are using a platform to hold the assets and a DFM to run the money, how do they justify their own fee when delivering an itemised bill to the end customer?

The group of CIOs and DFMs we spoke to played down this concern. For them, the adviser squarely owns the relationship with the client.

Perhaps a more pressing threat is the lower-cost discretionary solutions offered direct?

Many of the advisers we speak to feel that fund selection distracts from other aspects of the advice process. Others argue that, with sufficient scale, they can and should operate in-house fund selection. Smaller firms building bespoke solutions believe they would find it hard to justify their worth if they were not picking funds.

Focus on income

We also talked about retirement at the roundtable event, looking at the focus on income as opposed to capital appreciation. The DFMs around the table deal with some well-heeled clients – that is certain – but, nonetheless, they did lament dips in income causing a stir. Indeed, they only hear from clients when income falls below expected levels.

“They never look at the capital appreciation; they only notice a drop in income,” one told us. The view around the table was that there is a need for education on total return investing.

Adviser needs

Meanwhile, some advice for fund groups and platforms. First to fund groups: donuts can go a long way! There is a feeling that advisers are feeling a bit lonely and that fund groups that send sales reps out in the field will benefit. It seems the adviser community is seeing a whole lot less of them these days.

And for platforms: please sort out drawing income. Advisers want discretionary assets held on-platform but fund selection is limited and, more importantly, most platforms sweep income back into the portfolio and reinvest it.

It is very hard to deliver income on an ongoing basis on- platform and this is a deal killer for retirees in discretionary portfolios.

If you would like to get more detail on trends in fund distribution, respond to our latest survey to get a summary of results. You can do so here: http://bit.ly/1OCf92z

Meanwhile, sign up to attend our annual conference, which is taking place on 1 October. Details can be found at conferences.platforum.co.uk/2015

Inevitably, in today’s electronic environment, the odd mistake is made when selling investment funds. Whether through inputting the wrong number or simply miscalculating, one of the most profound mistakes is where a more-than-intended gain is realised. Uncorrected, this can bring adverse capital gains tax consequences for an individual.

Putting aside any wider plea in mitigation one may wish to advance to HMRC, let us look at how a gain might be corrected within the CGT rules on matching acquisitions and disposals of shares of the same class.

To calculate the gain on a sell, disposals must first be matched against acquisitions on the same day (same day rule), then against acquisitions within the 30 days following the disposal (bed and breakfast rule), then against shares in the wider longer held pool (Section 104 holding). Shares bought but matched under the same-day or 30-day rule do not enter the pool.

It is critical to understand that simply buying units back within 30 days does not mean the original mistaken sale is ignored. There is always some kind of CGT transaction with corresponding gain or loss and I tend to find this one of the most misunderstood rules.

Assume a total holding of 50,000 units, valued at £100,000 with base cost of £50,000. Thus, there is a gain of £1 per unit based on sell price of 200p and base cost of 100p. It was intended to sell 10,000 units for an amount of £20,000 to produce a gain of £10,000 but, unfortunately, 15,000 units were sold, for £30,000 producing a CGT gain of £15,000.

If corrected immediately with 5,000 units bought back straight away at 200p then the same-day rule offers salvation. There will be a sale of 5,000 units at 200p matched against an acquisition cost of 200p so no loss or gain. The remaining 10,000 units sold at 200p will continue to be matched against the pool cost of 100p giving the required gain.

However, if repurchase takes place outside the same-day but otherwise within the 30-day B&B period it becomes more complex where the unit price has changed. Assume the buy-back is made 21 days after original sale, at which time the unit price has risen to 210p.

This means any units of the original sale matched against buy-backs will show a loss of 10p. If 5,000 units are bought, then the original sale will show 10,000 units sold at 200p matched at 100p (gain £10,000) and 5,000 sold at 200p matched at 210p (loss £500), producing a total gain of £9,500.

The buy-back of 5,000 units costs £10,500 whereas the original sale released only £10,000. So, let’s do this in monetary terms: if £10,000 is used to buy-back at 210p this will buy 4,761.9 units. This will produce 10,238.1 units sold at 200p matched at 100p (gain £10,238.10) and 4,761.9 units sold matched at 210p (loss £476.19) producing a total gain of £9,761.91.

To be spot on we need a touch of maths and should work in units not pounds. Each unit matched against the pool will show a £1 gain and each unit matched against the buy-back will show a 10p loss.

Building a formula or a bit of trial and error will show that 4,545.46 units should be repurchased. 10,454.54 units will be sold at 200p matched at 100p (gain £10,454.54) and 4,545.46 units will be sold at 200p matched at 210p (loss £454.54). So, at the current price of 210p an amount of £9,545.47 should be used to purchase units.

If the unit price has reduced since the original sale, say, to 190p, then bought back units will show a 10p gain. It is the same principles just in reverse. Buying back 5,000 units would still show overall gain of £10,500 and using the £10,000 of oversell would show an overall gain of £10,263.

Here 5,555.55 units should be repurchased. 9,444.45 units will be sold at 200p matched at 100p (gain £9,444.45) and 5,555.55 units will be sold at 200p matched at 190p (gain £555.55). So, at the current price of 190p, an amount of £10,555.45 should be used to purchase units.

With forward pricing it may be tricky to be spot on first time and the more pedantic may want a second corrective action. Finally, remember the rules can be different where there have been periods of non-residence.

Paul Kennedy is head of tax and trust planning at Fidelity FundsNetwork

Old Mutual is home to one of the most successful UK equity teams. For more than a decade it has been a key contender within the UK small and medium-sized companies arena but with the appointment of Simon Murphy in 2008 and, more recently, Richard Buxton it now has considerable strength within larger companies too.

We identified its potential many years ago. Our multi-manager team first invested with Old Mutual’s UK smaller companies team in 2001 and investors have been richly rewarded since.

Investing over this period has required patience. Given the magnitude of the financial crisis in 2008, the most comfortable option for many investors was to sell everything.

However, unless investments were sold at the top of the market prior to its crash and repurchased at the bottom (which, in reality, even experts find near impossible), this would have proven a costly mistake. The Old Mutual UK Smaller Companies fund lost 45 per cent but investors who held on have been well compensated. It has since grown 271.6 per cent from its low in October 2008.

Stockmarket volatility during the crisis led the fund’s manager Dan Nickols to increase exposure to larger offerings within the smaller company universe. More recently, he has been diversifying back into the lower end of the market as he feels valuations are more attractive. I view this positively as this is where his stockp0icking has historically been finest.

Nickols invests within three broad themes: structural growth, special situations and economic sensitivity. The former includes supplier of mixer drinks, Fever Tree. The company has gained significant market share from others in the industry and has established itself as the only premium mixer provider.

The stock has risen 85 per cent since it listed on the market in November, aided by a growing number of premium gin brands in the UK and the rising popularity of the Moscow Mule cocktail in the US.

Special situations include veterinary service provider CVS. The company is consolidating a fragmented sector through the acquisition of smaller veterinary practices. This approach to growth has worked successfully for similar businesses in the past.

For example, funeral services provider, Dignity, which has previously been held in the fund, grew considerably through the acquisition of small, family-run funeral parlors.

Finally, Nickols invests in more economically-sensitive businesses. The collapse in the oil price has contributed to falling inflation which, when coupled with rising wages, means the average UK household has benefited from a 9 per cent increase in disposable income over the past year.

The manager expects companies operating within the consumer services sector to profit and investments in this area include house builder Crest Nicholson and car retailer Lookers.

The total number of new companies listing on the UK stock market has grown from 81 in 2013 to 106 over the past year. Nickols feels he is able to add considerable value through stock selection in this area and so is encouraged by the increasing number of opportunities this presents.

His involvement in initial public offerings has historically been positive for the fund. He has invested in 27 new smaller companies listings since 2013 and, on average, his selections have outperformed the Numis Smaller Companies (-Inv Trust) index by 20.6 per cent over this time.

Smaller companies suffered a hangover in 2014, following stellar performance in 2012 and 2013, but have performed well so far this year. There are always risks posed by the wider economic environment; however, with a more stable UK political scene, I feel UK smaller companies could enjoy something of a revival.

With one of the best UK teams at its helm, the Old Mutual UK Smaller Companies fund remains one of my favoured options to harness this potential.

With a policeman father and a mother who is ordained as a priest, it seems Lesley Titcomb was destined from birth to work at a regulator.

She has spent almost her entire career at the FSA and FCA, including managing the transition, and is now chief executive of The Pensions Regulator.

Titcomb joined TPR – which regulates trust-based pension schemes – in March this year after an 18-month search to find Bill Galvin’s replacement. She takes over at a difficult time.

Defined benefit schemes are under growing pressure, pension scams are on the rise and occupational schemes have emerged as the providers least prepared for the pension freedoms.

Meanwhile, in the background auto-enrolment is picking up speed, with nearly two million employers attempting to navigate the rules within the next three years.

Calls to merge the far smaller regulator with behemoth FCA have also not gone away.

But Titcomb says there are “good reasons” why there are two regulators and is adamant TPR does not need to fundamentally change its approach.

She says: “The world is changing rapidly around us but revolution is not needed in the way we regulate.”

She admits, however, the organisation will need to adapt to tackle the scams that have flourished on the back of the freedoms.

Police data shows losses resulting from pension scams more than tripled in May – to £4.7m – just a month after the reforms took effect.

She says: “DC is a slightly different style of regulation for us. In DB we have a wide range of powers you can use once you become aware of a situation after the event and over quite a significant period of time.

“Whereas in DC, members of a scheme are exposed to investment risk and it’s easier to get your money out. They are more exposed and there’s the potential for scams. It used to be liberation and trying to avoid tax penalties and now we’re seeing it evolve in the freedom and choice world.

“That kind of problem requires a much more front foot, fast response type of regulation. Once the assets have gone, offshore or invested in something deeply unsuitable, it’s too late.”

One of TPR’s summer projects is investigating how occupational schemes, in particular mastertrusts such as Nest, are adapting to the reforms. The majority of schemes are still only offering a 25 per cent lump sum and annuity option, Titcomb says.

“We want to understand how they’re responding to freedom and choice. There are a whole range of risks to mastertrusts: there’s the governance, the volumes they’re coping with and dealing with investments.

“One focus will be business continuity. Could they keep operating if something happened? Will members still be able to transact?” she says.

Auto-enrolment will bring millions of small employers into pensions for the first time and it is TPR’s job to support, monitor and dish out penalties when necessary. That job has become harder as a growing economy means an extra half a million firms than expected will hit staging dates.

She says: “We’ve failed if we’ve got to the stage of fining. Our success will be measured in getting small firms to engage early and do things that they need to do to auto-enrol.

“The discussion around carers and nannies has helped raised awareness. We’re speaking to organisations like the Association of Convenience Stores to engage with small firms.

“There are good examples other organisations have run, such as HMRC and real time information or the FCA and consumer credit, and there are techniques you learn in getting your message across to people,” she says.

Titcomb is also considering beefing up TPR’s powers. Unlike the FCA it cannot make rules and the new “second line of defence” imposed on pension providers at the eleventh hour may be enshrined in law.

“There’s a perception, particularly among consumer organisations, that rules are better than guidance and have more power, and that therefore we can enforce more easily if someone breaches a rule or law.”

The rapid and far-reaching nature of the pension reforms has left many in the industry clamouring for tighter guidelines – a plea familiar to Titcomb from her days in Canary Wharf.

“Some say they want more guidance but what people are normally looking for is certainty.

“That runs across the gamut of small organisation regulation. When I was a small firm supervisor at the FCA that was true. On the other hand, some people say ‘please don’t give us anything new and ask us to comment, we’d just like a period of quiet and consolidation to sort ourselves out’.”

Despite the difficulties of balancing enforcement and support, Titcomb remains wedded to the “intellectual challenge” of regulating.

“You don’t go into regulation to be liked, that’s for sure,” she says.

“Over 20 years I’ve experienced some quite vitriolic feedback at times. The strongest I experienced was the take on of mortgage regulation by the FSA and the commencement of the Mortgage Market Review.

“But it’s important that regulators are held to account. The industries that we regulate contribute to the levy that funds us and it’s incumbent on us to be transparent and accountable.”

“It’s important that people engage with us and that’s why consultation is so important. We need to know how these things will play on the ground really.

“I’m a great pragmatist – whatever we do has got to be workable in practice. There’s no point in us designing regulation or guidance that doesn’t work on the ground.”

Five questions

What’s the best bit of advice you’ve received in your career?

Trust your instincts: 95 per cent of the time you will be right and the other 5 per cent is a learning opportunity.

What keeps you awake at night?

Very little! I remain resilient by trying to get seven hours sleep a night.

What has had the most significant impact on financial advice in the last year?

The requirement to take advice on certain transfers and for trustees to signpost members to Pension Wise and regulated financial advice.

If I were in charge of the FCA for a day I would…

I cannot speculate about hypothetical situations.

Any advice for new advisers?

Consider getting the qualifications for advising on pensions. High quality pensions advice is in demand.

Sipp providers say the Pensions Ombudsman’s decision to throw out a complaint made by a member who lost a £40,000 investment will reassure the market.

Alexander Toward said Sipp firm Yorsipp failed to carry out proper due diligence on a 2011 investment, an unsecured loan to an unregulated firm called PFS.

The investment was to be used to fund commercial litigation, a controversial investment not accepted by many Sipp firms. The loan agreement stated interest was payable by PFS at 9 per cent a year paid quarterly.

Toward was a client of adviser Stewart Asset Management Limited, which began being wound up in 2013 and is now in liquidation.

Brian Stewart and Jacqueline Fowler were directors of SAML as well as PFS, but Toward says he did not know this when he made the investment.

In the application form he signed when making the PFS investment, Toward declared he had the financial ability to bear the risk of the investment and he was an experienced professional investor.

But Toward says he does not consider himself a professional but an “inexperienced, low risk” investor and relied on SAML as “experts”.

According to PFS’s liquidator report to January 2015 the firm had loaned £6.8m to three different parties “in order to fund certain litigious actions”.

The Ombudsman ruled Yorsipp undertook adequate checks on the investment under the requirements at the time. In addition, it was reasonable for Yorsipp to assume Toward had done his own due diligence after declaring he was a professional investor.

Ombudsman Anthony Arter says: “The evidence, therefore, falls short of establishing that injustice was caused to Mr Toward as a result of any failure on the part of Yorsipp to exercise due care and diligence in the conduct of business with him.”

Suffolk Life head of communications and insight Greg Kingston says: “Sipp operators increasingly feel they are at risk of being subject to claims for investment loss when all other avenues have proved unsuccessful and been exhausted. This ruling correctly offers reassurance that this is not the case.”

The Ombudsman says Sipp providers’ responsibility is limited to “guidance, help and support” when making investment decisions, while appropriateness and suitability are the responsibility of advisers.

But Dentons Pensions Management director of technical services Martin Tilley says the regulator’s changing stance has meant providers have taken on more responsibility.

He says: “At the time these investments were made, the requirement on a provider was to determine whether it was in the interest of the member because the asset may result in taxable charges.

“But investments beyond the date of the 2012 thematic review I don’t think would get a similar response because the regulator gradually chipped away and put more and more onus on the Sipp providers to make sure the business they were writing was in the best interests of their customers.”

The Ombudsman disregarded Toward’s claim that he did not read the application form for the investment because he trusted the advice he was given by SAML.

Tilley says it is “absolutely critical” both the Pension Ombudsman and Financial Ombudsman Service recognise individuals’ responsibility.

He says: “Individuals should be able to take responsibility for their pension savings. That means if you’ve gone through an advice process, given appropriate documentation and signed it, the person who issued it should be able to rely on the fact that if you’ve signed it then you have read and understood it.”

Adviser view

Paul Holiday, director, GreenSky Wealth

It’s good that cases like these are being highlighted. It depends how you act as a firm. If you have confidence and the knowledge to back your investment decisions and knowledge of the underlying investment and who the counterparties are then their should be no worries about what you get your clients to sign.

But if you don’t understand those underlying things you obviously have an issue and things will come back to bite you.

Traditionally considered a safe haven asset, gold is now becoming a questionable investment after the price saw its largest drop in the past five years.

On 20 July the gold price plunged to $1,090 per ounce from $1,108 per ounce, it’s largest single day drop in five years. It continued falling during the week, marking its biggest weekly decline since September 2008, falling to below $1,078 at its latest point on 24 July. It has since rebounded to $1,102 as at 27 July but remains well below the $1,900 per ounce high reached in 2011.

So what caused the drop in the gold price, and what are fund mangers doing while waiting for a further price rebound?

The yellow metal is traditionally seen as a store of value and a protection policy “against catastrophe”, says Hargreaves Lansdown senior analyst Laith Khalaf.

However, now that worries around markets have mostly receded, this safe haven asset is not as in demand.

“Downwards pressure on gold is mainly the result of higher risk appetite, following the deal by Eurozone leaders on Greece earlier this month,” argues Pictet Wealth Management chief strategist Christophe Donay.

“As fears about Grexit have dissipated, markets have switched their focus back to fundamentals, which are broadly supportive.”

However the dramatic drop in gold price does not come as a very big surprise for many since gold has been trading at low levels for a couple of months already.

Before this most recent selloff gold was already trading at low levels, says CMC Markets chief market strategist Colin Cieszynski, with the price of the precious metal going from $1,200 per ounce in mid-May to $1,140 at the start of July.

This suggests the market was already prepared to see prices falling.

Khalaf says: “Gold has struggled against a backdrop of global economic recovery and a strengthening dollar, and the recent sell-off appears to have come on the back of the Chinese central bank reporting its gold holdings, which disappointed analyst’s expectations.”

In mid-July China announced it had increased its gold reserves by approximately 60 per cent since 2009 to 1,658 tonnes.

“This would have been great for gold except that on a relative basis, gold still only represents about 1.5 per cent of China’s forex reserves,” says Cieszynski.

He adds: “Even worse … gold’s weighting in the People’s Bank of China’s portfolio hasn’t grown in the last six years, pretty much crushing hopes China’s drive to a free floating currency would save the gold price.”

As gold has historically been seen as a hedge against inflation, experts also argue that current low inflation has reduced the need to use it as a hard asset currency.

“With Iran preparing to return to the oil market amid an ongoing supply war among other producers including the US, Saudi Arabia, Iraq and Russia, the price of oil has tumbled back toward $50 for WTI and $56 for Brent.

Axa Wealth head of investing Adrian Lowcock says if we see inflation coming back that will be “a big driver” for gold. “Gold is priced in US dollars, so anything that happens to the US is what really matters.”

Interest rate dependency

Clearer signs from the Federal Reserve in the past weeks that a US interest rate rise will come before the end of 2015 were also bearish for gold, experts say.

Khalaf says: “Gold doesn’t pay an income, which isn’t particularly painful while interest rates sit at close to zero. But as they rise the opportunity cost of holding gold instead of cash rises too, and thus it becomes relatively less attractive.”

Columbia Threadneedle commodities portfolio manager Nicolas Robin has been underweight gold for at least 18 months and thinks the price will fall further, to around £1,000 before the end of the year.

He says: “We didn’t like gold for the upcoming interest rate hike as well as the strong dollar.”

He also reduced his silver holdings two months ago and instead went overweight energy and gasoline.

However, not everyone believes a rise in interest rates will have a negative impact on gold as the Fed tightening is likely to be gradual.

After the first rate rise, there may be some kind of relief rally for the gold price, and gold equities in particular, says JP Morgan client portfolio manager James Sutton, who manages the Natural Resources fund.

However, for now, he will not be making any changes.

Sutton says: “At present we have 18 per cent invested in gold equities and this position hasn’t really changed for the past two years. We’re underweight compared to our benchmark, which has 33 per cent in gold equities.”

However, there is still value in holding gold equities as they are a good portfolio diversifier because they have different performance credentials to other asset classes, Sutton says.

“In previous rate hike cycles, gold tends to underperform but as long as the next rate hike is not severe, that wouldn’t cause much of a problem.”

Balancing options

Those choosing to go into gold equities rather than the the physical metal should stay invested in companies that have good fundamentals and business models able to “survive the downturn” and still be around to benefit from higher gold prices in the future, Sutton recommends.

He adds: “We could be in a depressed environment for another two or three years so it’s best for investors to avoid companies that rely on higher gold prices to stay in business.”

Lowcock says in the short to medium term pressure on gold will continue and sophisticated investors might tactically sell their gold holdings in the meantime.

However, there is still a role for gold, he says.

Khalaf says: “Investors who hold gold should do so for some insurance in their portfolio, and as such need to scale their position accordingly.

“Gold should account for no more than 5 per cent of your portfolio, and where investing via exchange traded commodities, always use physically-backed products.”

What’s next?

Debate still remains as to whether the recent big drop in the gold price is the start of a new downleg or the final washout before a rebound.

“Having tested $1,080, gold has now completed a 50 per cent retracement of its 2001-2011 bull markets,” Cieszynski explains. “Should that level drop, gold could fall to retest the $1,000 big round number or perhaps even complete a 62 per cent retracement by testing $880 over time.”

If gold were to rebound, it could bounce back up towards the $1,160 to $1,240 range where it traded previously, he says.

Seasonality may also mean that gold’s sell-off may be close to running its course.

Cieszynski says: “Historically, May to July has been one of the weakest times of the year for gold, however it has then bounced back in August and September ahead of wedding season in India, the peak time of year for physical gold demand.”

Many of the risk reduction technologies out there worry me. However smart your box of tricks, it is still a box of tricks playing with historical data. You can spin the stochastic wheels all you like but do not pretend the results give you a handle on the future, because they are only projections of the past. I prefer the original term for stochastics: Monte Carlo simulations.

Many of those applying these tools seem to believe they are controlling risk, whereas all they are actually controlling – and only within the limits given by history – are standard deviations.

Just as the persistence of low volatility tells you nothing about the actual level of risk (a sudden spike up in volatility will instantly unleash a tsunami of expert comment explaining the risk that was always there), the output from stochastic engines will always be converging on history.

The more consistent the outcomes look, the worse they will actually be in terms of the disruptive unknowns that are the real source of risk and which they cannot estimate.

This is all familiar territory to students of Knight and Keynes, both of whom emphasised the far greater importance of unquantifiable uncertainty than of quantifiable risk in investment.

What seems to me most important for financial planners is that people do not, as is often said, hate uncertainty. In fact they have a love-hate relationship with it. Their attitudes towards annuities demonstrate this perfectly.

Why would you not be happy with an inflation-proof income guaranteed for the rest of your life? It is about as much certainty as you can get. But many people want the chance to get higher returns, cash in a bit of capital or hand money onto their heirs. So they exchange certainty for hopes and risks of one kind or another.

Uncertainty is an essential feature of investing. Investment advisers attempt to place limits on that uncertainty because part of their job is to limit the possibility of ruin for their clients. But over-quantifying the process of generating suitable solutions is not a way of improving the solution, nor of improving clients’ understanding of solutions.

The trick – simple but not easy – is to know when to rely on historical data and when not to. One way of framing this is to say that financial variables all appear to revert to their mean: equity income yield, long-term bond yields, cyclically-adjusted price to earnings, book value and so on.

The major uncertainty is the time it takes them to do so and the shape of the journey. However, the longer a variable has been well above its historical mean, the greater the likelihood of a snap-back.

Our current issue is that quantitative easing has distorted markets so much it is hard to make the obligatory intelligent, well-informed guess about how reversion will play out this time around. Needless to say, I do not think spinning the Monte Carlo wheels will help.

Chris Gilchrist is director of Fiveways Financial Planning, a contributing editor to Taxbriefs Advantage and edits the IRS Report

The FCA is to expand initiatives to encourage innovation across financial services through a series of themed weeks, beginning with sessions on robo-advice.

Beginning in September, the FCA will seek to learn about problems with the regulatory system as well as dispelling myths and uncertainties, with robo-advice first to be targeted.

The final programme has yet to be decided, but the FCA hopes the initiative will help it understand development and encourage innovation.

At the same time, the FCA says it hopes to expand the reach of Project Innovate and is seeking better engagement with larger businesses, which it says have failed to reach out to the regulator.

It is understood the issue is represented across the financial services industry, with market leaders in insurance, banking and advice failing to participate.

The FCA says: “This is a missed opportunity for them, particularly if they hold back on initiatives because of apprehension or uncertainty about the regulatory environment, as well as for us (since it limits our impact).

“We will therefore build a programme of proactive engagement with large incumbents, to make sure their potential for consumer-friendly innovation is not being held back by regulatory considerations. In particular, we will seek out opportunities to conduct pilot research on new initiatives.”

The Government faces mounting pressure to review the funding regime for Pension Wise and tackle fraud as the freedom reforms begin to creak.

Last week the Treasury gave the first indication of how the state-backed guidance service is performing.

Pension Wise has provided 18,000 guidance appointments in the three months since its launch although the Government has not broken down the figures to show how many of these were face-to-face through Citizens Advice and how many were over the phone through The Pensions Advisory Service.

Officials also estimate in total 925,000 individuals have visited the Pension Wise website, although no information has been provided on actions taken as a result of any receiving guidance.

This week George Osborne told members of the Treasury committee that 90 per cent of those who had used Pension Wise had reported satisfaction with the service in an exit survey. However, the Treasury has so far been unable to provide any additional data to support the Chancellor’s claim.

Separately, national data collected by City of London police shows reported losses from pension fraud shot up 235 per cent in May to £4.7m from £1.4m in April.

There were 3,704 reports of pension liberation fraud in the two years to May 2015, with combined losses of around £25m. Average losses from scams are now at around £15,000.

The Department for Work and Pensions, one participant in a multi-agency taskforce tackling scams, warns the data “should not be taken out of context or wrongly described as a spike”.

It says: “Rises could be due to a number of factors, such as increased industry reporting or rising awareness.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “For most investors the pension freedoms are working well but the risks of pension fraud and the improbability of widespread take-up of Pension Wise were well known in advance.

“The pensions industry needs to agree with policymakers the minimum standards which all pension investors should receive when they access their pension savings.”

The Government has already extended Pension Wise to make it available to anyone aged 50 or over, a sign that take-up of the service has been lower than policymakers expected.

Informed Choice executive director Nick Bamford says the £35m service should be funded out of general taxation rather than through a levy on financial services firms. Advisers have been forced to pay £4.2m towards the running of Pension Wise in 2015/16.

Bamford says: “If these early numbers are indicative of the annual demand for Pension Wise appointments, then it means it costs about £650 per person to deliver. They could have got authorised, regulated advice for that. The problem is as soon as the Government realises take-up is low it makes it available to more people rather than reviewing the costs because there is an endless pot of money from levy payers. This should be funded from the general tax pot rather than through an industry levy.”

In numbers

18,000

Number of people who have received guidance appointments either through TPAS or Citizens Advice

235%

Rise in reported losses resulting from pension fraud in the month following the introduction of pension freedoms

The portfolio manager for the Fidelity Japanese Values investment company has switched, with Nicholas Price having been appointed to take over from current manager Shinji Higaki.

Price will take over the full management of the portfolio on 1 September, after a transition period with Higaki. He already runs Fidelity’s Global Emerging Market Equity funds.

Price has been with Fidelity for 12 years, having started in the Tokyo office as a research analyst. He became a portfolio manager in 1999.

Fidelity Japanese Values chairman David Robins says: “Considering the coordinated pro-growth policies and the fundamental changes in corporate behaviour that are occurring, the outlook for Japanese equities is attractive.”

The passive fund management industry is seeing a new wave of cost cuts as competitiveness drives a price war across the market.

This week has seen several price cuts on a number passive tracker funds from leading providers, including BlackRock and Vanguard.

BlackRock slashed fees for five core funds in its Collective Investment Funds range as part of a regular review of charges and the “value proposition” of the funds.

The ongoing charge figure for the BlackRock 100 UK Equity Tracker Fund and the BlackRock UK Equity Tracker Fund was cut from 0.16 per cent to 0.07 per cent, while the BlackRock US Equity Tracker Fund and BlackRock North American Equity Tracker Fund saw a rate cut from 0.16 per cent to 0.08 per cent.

In addition, Vanguard will remove the dilution levy of 0.10 per cent on its entire Vanguard LifeStrategy fund range, which currently has more than £2bn in assets. The range, which uses Vanguard’s index funds and ETFs as components, will continue to have an ongoing charge of 0.24 per cent.

Hargreaves Landsdown head of passive investments Adam Laird says though passive funds charges can’t go “much lower” than current levels, they might possibly reach 0.03 per cent, which is the charge of the cheapest passive fund tracker offered in the US.

Although it depends on the market and asset class, if fees are lower than 0.09 per cent then the fund is “worth consideration”, says Laird.

However, some providers have a way to go to be competitive.

Laird says there are providers who are “simply sitting in their bunkers” and charging “way above” the going rate for their funds. Some providers charge over 1 per cent for the same type of funds that BlackRock cut its fees on, says Laird.

For example, the Alifax FTSE100 and Virgin FTSE All Share tracker funds both charge 1 per cent, while the Henderson UK tracker fund has ongoing fees of 0.78 per cent.

Laird says: “We haven’t seen much movement in these funds, but I hope that fees will be reduced as these funds cost investors over the odds.”

‘Not all about fees’

Cutting fund fees to remain competitive is not the only message providers want to send to advisers and investors.

Vanguard can keep costs low because of its “unique ownership structure in the US, under which we operate at-cost and return profits to investors in the form of lower expense ratios”, head of retail Nick Blake explains. “As our assets under management increase globally, we can continue to reduce expense ratios for the investors in our funds.”

At the moment, within Vanguard’s equity index funds, the cheapest product is the FTSE UK All Share Index Unit Trust, which charges 0.08 per cent. However, other funds such as the US Equity Index Fund or the FTSE Developed World ex-UK Equity Index Fund charge 0.10 per cent and 0.15 per cent, respectively.

Legal & General proposition manager of retail index funds Dan Attwood says index fund management is “really about scale”, rather than fees. “Fees are important factors, but we don’t think it is the only factor as the scale of the provider and the commitment to the market you are trading into are also key,” he says.

Making the cut

Since November 2014, Legal & General has “substantially” reduced ongoing charges up to 55 per cent across its retail index fund range, Attwood says. The largest cut was on the L&G International Index, now charging 0.14 per cent instead of 0.33 per cent.

From 1 June 2015, L&G also introduced a fund management fee of 0.10 per cent which will be used to pay the various costs of managing the fund.

The move was thought to “make it simpler for investors” and “reduce the risk of ongoing charges going up”, says Attwood.

Attwood says though the firm is committed to keeping fees at current levels, “we will continue reviewing those charges and ensure they keep adding value for investors”.

BlackRock ETFs provider iShares says it also has no plans to change the pricing of any of its ETFs in “the foreseeable future”.

There is still further ground to be gained in the passive price war, but these battles are “likely to rage on new fronts”, says Laird. “I believe that rather than seeing more price cuts on passive funds, you’ll see more of these cuts in other asset classes, such as emerging markets and bonds.”

Laird adds: “In spite of the price war, there is a lesson there for investors to start actively reviewing their funds and ask questions to the managers on the fees.”